Senate Bill Could Encourage More Trade Secret Litigation

A bill that would fundamentally change the nature of trade secret litigation in Texas is quietly working its way through the Texas Legislature as we speak. Senate Bill 953, by Texas Sen. John Carona (R-Dallas), would adopt the Uniform Trade Secrets Act in Texas, one of only three states that hasn’t already done so.

Right now, trade secret litigation in Texas is literally argued on a case-by-case basis.  Each case has its own facts, and appellate decisions have been written narrowly, sometimes conflicting with each other. The end result is that we live in an inexact world, trade secret-wise, and there’s probably something for everyone lurking out there in the trade secret common law. 

In that sense, having a Uniform Trade Secrets Act (UTSA) would be a boon. Of course, courts could still have conflicting interpretations of various provisions of the act, but we would all be starting from the same reference point.

The devil, of course, is always in the details.  And when it comes to the UTSA, one of the potentially problematic details is the inclusion of a “list of actual or potential customersor suppliers” in the list of what would be considered a trade secret. As one who is frequently called on to represent executives (and their new employers) who have been accused, in some form or fashion, of misusing a former employer’s trade secrets, this could be troubling.

Under our current (though admittedly flawed) system, customer identities are often not protected, particularly since it’s remarkably easy in the Internet era to learn who is whose customer. If a total stranger could obtain a list of a company’s customers through publicly available means (Google, LinkedIn, etc.), then why should an executive or her new employer be forbidden from using that same information?

If SB953 becomes law, this question will probably be addressed sooner rather than later. Right now, though, there doesn’t seem to be any organized opposition to Texas adopting the UTSA; at a March 25 Senate State Affairs Committee hearing on the bill, three people testified on behalf of the bill and nobody testified against it. So this is clearly not shaping up to be the Battle Royale of the 83rd Legislature.

If it passes—right now it’s pending in the House after being approved by the Senate—I predict it will make companies more likely to pursue trade secret litigation than they are now. In addition to it potentially expanding the amount of material protected as a trade secret, SB953, as drafted, includes a provision requiring the court to protect the alleged trade secrets by “reasonable means,” such as limiting access to the information to attorneys in the case, sealing the records, etc. That provision would probably lower the barrier for many would-be litigants who, in the current environment, have often decided not to pursue a lawsuit because doing so might mean the disclosure of the information they’re trying to keep confidential.

Knowing that the UTSA places a cone of confidentiality over their trade secrets (or, at least, what they claim are trade secrets) gives companies the peace of mind they might need to go ahead and file suit without fear that they’ll risk disclosure of the very information they’re trying to keep secret.

There are just about six weeks left in this legislative session, which ends on May 27. If passed and signed into law, the UTSA would take effect on September 1.

Executives looking to make the leap to another employer, you have been warned.

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